Financial Operations of Insurers

LMN Mutual Insurance Company has total liabilities of $300 million. The company has total assets of $380 million. What is LMN's policyholders' surplus?

• $680 million

• $340 million

• $80 million

• -$80 million

Which of the following would not appear in the asset section of an insurance company's balance sheet?

• loss reserves

• bonds

• common stock

• real estate

Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called the

• judgment method

• tabular value method

• loss ratio method

• average value method

Reasons for the unearned premium reserve include which of the following? I. To pay losses that occur during the policy period. II. To pay premium refunds to policyholders in the event of cancellation.

• I only

• II only

• both I and II

• neither I nor II

A property and casualty insurer's loss reserve includes estimates for all of the following EXCEPT

• claims anticipated but not yet incurred.

• claims reported and adjusted but not yet paid.

• claims reported and filed but not yet adjusted.

• claims incurred but not yet reported to the company.

Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true? I. The judgment method involves the use of a statutory formula to estimate the loss reserve. II. The average value method is used when the number of claims is large and the claims are settled quickly.

• I only

• II only

• both I and II

• neither I nor II

One item that appears on an insurance company's financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reported and filed but not yet adjusted, and claims incurred but not yet reported to the company. This liability is called the insurer's

• net income.

• loss reserves.

• admitted assets.

• unearned premium reserve.

A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n)

• admitted asset.

• incurred-but-not-reported (IBNR) reserve.

• unearned premium reserve.

• case reserve.

Which of the following items would appear in the income section of an insurance company's income and expense statement?

• underwriting expense

• bonds

• loss reserves

• premiums

JKL Insurance Company reported the following information on its accounting statements last year: - Premiums Written $90,000,000 - Loss Adjustment Expenses $5,000,000 - Underwriting Expenses $30,000,000 - Premiums Earned $100,000,000 - Incurred Losses $70,000,000 What was JKL's loss ratio last year?

• 70.0 percent

• 75.0 percent

• 83.3 percent

• 90.0 percent